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Bond yields rise ahead of release of the Fed’s preferred inflation measure

Trading News

Bond yields rose on Friday ahead of data expected to show a further cooling in the Federal Reserve’s preferred measure of inflation.

What’s happening
  • The yield on the 2-year Treasury
    TMUBMUSD02Y,
    4.223%
    rose 4 basis points to 4.22%. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury
    TMUBMUSD10Y,
    3.563%
    rose 6 basis points to 3.55%.

  • The yield on the 30-year Treasury
    TMUBMUSD30Y,
    3.684%
    rose 4 basis points to 3.68%.

What’s driving markets

Attention turns to Friday’s release of economic data from the Commerce Department, which includes the PCE price index —the Fed’s preferred measure of inflation.

The core PCE price index is seen decelerating to a 4.4% year-over-year rate in December from 4.7% in November, according to economists polled by The Wall Street Journal, in one of the last data released ahead of the Federal Open Market Committee decision on Wednesday.

“It would support the case for a more modest 25bps next week, however as we get nearer to the end of the Fed’s rate hiking cycle there is some divergence with respect to what might come next,” said Michael Hewson, chief market analyst at CMC Markets UK.

“Judging by the bond market reaction [Thursday] which saw yields move higher there may be a realization that rates are likely to remain higher for longer, while the strong close for stocks might suggest the market believes rate cuts might not be too far away,” he added.

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